Evaluating DeFi Projects: Key Metrics to Consider Before Investing

The variety of investment opportunities in the decentralized finance ecosystem is simultaneously a blessing and a curse. A smart investor with enough time and resources can find an optimal portfolio composition with DeFi investments that deliver exceptional returns. At the same time, newcomers struggle to identify great options in the sea of novel financial instruments.

Evaluating DeFi projects is a challenge that many beginners never overcome. For instance, up to 27% of investors believe that difficult onboarding is one of the greatest issues for the adoption of DeFi instruments. It is simply too hard to learn them and get busy investing. While many protocols are trying to improve user experience and streamline many processes, DeFi is still leagues behind traditional financial services.

Another big issue is that key metrics for DeFi investment are wildly different from what many investors are used to in traditional markets. We still have to track price action, narratives, market data, and investor sentiment, but there are also things like total value locked, tokenomics, governance participation, and more.

What are the best DeFi projects?

Choosing good capital allocation options can be a challenge even for experienced veterans with years of experience. In the DeFi ecosystem, one can invest in over 14,300 pools across 462 protocols on 101 chains. Note that this data comes from DeFiLlama alone. These are options tracked by a single aggregator.

On top of projects that have liquidity and staking pools, there are over 11,000 protocols operating across 110 chains that use other forms of capital accumulation. Selecting a reliable strategy with such a diversity of options is a nightmare for an unprepared investor.

The importance of due diligence in DeFi investments is not to be underestimated. Doing your own research and making sure that you pick trustworthy protocols are imperative acts in the world of decentralized finance.

A good alternative to doing all the legwork is going to Rivo and visiting the yield marketplace. Here, you can browse a vast catalog of strategies picked by experts, verified by experienced staffers, and checked for reliability and safety. In essence, Rivo does all the heavy lifting for you allowing you to focus on selecting the right fits for your portfolio and risk tolerance. Enjoy team experience in DeFi without teaming up with anyone!

If you want to do all the research personally and make sure that you are an informed investor, prepare for a laborious endeavor as it can take hours to dig up the necessary data and compare various metrics to each other!

Total Value Locked (TVL)

This metric is essential for the DeFi ecosystem. As the name suggests, it tells you the total amount of assets locked in a given protocol or pool. Naturally, this metric indicates the popularity and trust of the community of investors.

How to interpret:

• High TVL suggests high levels of user confidence.
• TVL is a good indicator of liquidity and utilization.
• Low TVL is often a worrying sign that increases risk.

As of 2025, the total value locked across all DeFi protocols is over $90.1 billion with leading categories being lending protocols at $39 billion and liquid staking at $37.6 billion.

Protocol performance metrics

Ultimately, all DeFi platforms are created to generate value. Tracking metrics of different protocols is extremely important for investors interested in building a successful portfolio with digital investment instruments at its core.

Here are some important ones:

• Transaction volume is the number of transactions processed by a protocol over a certain time frame. Higher volumes indicate stronger adoption, user activity, and utility. As of the time of writing, DEXes alone process over $7 billion daily.
• User activity or unique addresses is the number of wallet addresses that interact with a protocol. The metric indicates the level of adoption and engagement. By the end of 2024, EVM protocols had over 20 million unique addresses interacting with them.
• Revenue and fees. Instead of looking at liquidity and trading volume, you can focus on the financial performance of protocols. In essence, this metric reflects the financial health of any given protocol. For instance, DEXes generate roughly $3 million within 24 hours (as of the time of writing).

Tokenomics analysis

Tokenomics is a layout of distribution, inflation, utility, and other metrics of native tokens. In general, it reflects the alignment of the protocol with its long-term goals, investor interests, and user engagement targets.

Here are some important factors:

• Total supply is hugely important as it plays into inflation rates and the long-term scarcity of a token. For instance, there will only ever be 21 million Bitcoins. Uniswap limits the maximum supply of UNI to 1 billion.
• Anti-inflationary mechanisms must be considered. The impact of market trends on the success of DeFi projects can be devastating. Potential inflation plays a huge role in market performance. Protocols may burn excess tokens or provide staking rewards to deal with it.

Regulatory risks in DeFi

When evaluating different projects, it is important to keep in mind the absence of consumer protection in the DeFi ecosystem. Investors are not protected from fraud, pump-and-dump schemes, and many other forms of illicit activities that are often dealt with quite efficiently in tradfi.

Taxation and the status of digital assets are also important factors. In the US, some tokens are considered securities while others are still in the gray area. Researching regulatory frameworks is essential for a long-term DeFi investment.

Security audits and incidents

Understanding how technological advancements are shaping the evaluation of DeFi projects is quite important from a security point of view. DeFi hacks are still a common occurrence despite the best efforts from developers. While the number of successful cyber attacks keeps falling in general, 2024 had a spike in the volume of funds stolen by hackers. The number grew by 21.07% to a massive $2.2 billion.

To avoid smart contract risks, it is important to work with projects that conduct regular security audits, offer bug bounties, and work diligently to build secure digital infrastructures. It can be difficult to find such protocols, but a responsible investor makes sure to avoid platforms that do not have such safety features.

Other important metrics

DeFi investors must consider a variety of factors when evaluating a protocol. While the aforementioned metrics have the highest level of priority, others must be accounted for too:

• The market capitalization of the protocol’s native tokens often reflects the level of investor confidence. For instance, AAVE is one of the most successful lending protocols, with the token’s mcap eclipsing $2.6 billion.
• Annual percentage yield (APY) is an important metric that allows you to estimate potential returns on investments. Some protocols have hundreds of pools so looking at average numbers is a good idea. For example, Compound Finance offers 123 pools averaging 0.66% APY.
• Time in operation is another important metric. Reliable protocols have been around for years earning trust and respect from DeFi users. The community impact of DeFi protocols is best measured through the lens of time. MakerDAO, one of the most successful DeFi projects, has been going strong since 2017!

When trying to pick the right investment option, look at liquidity depth, cross-chain compatibility, governance participation numbers, and other factors that may indicate the general health of a DeFi protocol!

Another important point is that you must learn how to stay informed about emerging DeFi projects and metrics. Follow the Rivo blog, visit social media platforms, and periodically check aggregators like DeFiLlama to be in touch with the world of DeFi!

The main takeaway

Finding gems in the pile of rocks formed by DeFi protocols can be a challenge even for seasoned veterans. However, you can use a variety of metrics to evaluate different protocols and their potential performance.Alternatively, you can visit Rivo and explore its yield marketplace. Engage with the helpful Maneki AI assistant that can provide you with the latest news stories, guide you through the UI, and suggest optimal investment strategies based on your preferences and risk style.